McCain: Goldman Acted Like a Sports Bettor
The chairman of Goldman Sachs, the investment banking firm being sued by the federal government for fraud, will appear before a Senate subcommittee this morning.
CBS News Congressional correspondent Nancy Cordes reports that, according to prepared testimony, Lloyd Blankfein will tell Senators today, "We certainly did not bet against our clients."
The SEC has accused Goldman of knowingly deceiving clients, not telling them that one of the mortgage-related investments, Abacus, was designed to fail. Internal company e-mails released by congressional investigators suggest Goldman was having trouble finding an outside manager to vouch for Abacus, with one trader writing that one manager "declined given their negative views on most of the credits...."
Watch Blankfein's and Tourre's Senate testimony online here at CBSNews.com, starting at 10 a.m. EDT Tuesday
Appearing on CBS' "The Early Show" this morning, Sen. John McCain, R-Ariz., said that while he does not believe Goldman Sachs was literally betting against itself by profiting on failing products, he said, "I think they were trying to hedge their bets, the same way if you go to it Las Vegas and the Sportsbook balances the bets. But it had the effect of worsening and deepening the housing crisis in my view."
Despite yesterday's filibuster by Republicans to block debate on the Democrats' financial reform bill, McCain he believed the bill is not dead.
"I think that there has been significant progress made," he told "Early Show" anchor Harry Smith. "I think there's more progress that needs to be made. There's a lot of complexities here; a lot of members frankly don't understand all aspects of the bill. But I think there is a common desire to achieve a goal here." (Watch the video at left)"In the end, if this gets passed, will Americans be immune from the same kind of cataclysm that almost took the country off the economic edge two years ago?" Smith asked.
"The bill as it's constituted, I certainly couldn't give that guarantee," McCain said. "For example, Fannie Mae and Freddie Mac are not included in any way in the legislation and they were the major catalysts behind this meltdown." [It is a statement McCain has made before, and which Politifact has questioned, referring to economists who say the two loan giants — whose rescue and stabilization will cost taxpayers about $85 billion — were simply following in the wake of those who sold subprime mortgages in the first place.]
But, McCain added, "I think there is a good faith effort being made to reach an agreement."
Smith asked, if giant banks are now making most of their money not by mergers and acquisitions or investment banking but by trading, and don't wish to get out of the trading business, how would the bill dismantle giant financial institutions to prevent a "too big to fail" scenario?
"Well, I think that there are regulations over so-called derivatives and there's other measures," McCain said. "But what bothers me is, why don't we, as Senator Cantwell and I have recommended, just go back to the point where banks that do the traditional banking things — making loans to people so they can buy their homes and all of that — make them separate from these financial institutions?
"As we'll find out today in the hearing with Mr. Blankfein . . . they do a lot of other things. In fact, there is compelling evidence that the kind of activity that Goldman was in hastened and deepened the crisis."
More on Goldman Sachs:
Goldman Execs Teed Up; Will Senate Swing Hard?
CBSNews.com Special Report: Wall Street Under Fire
Blankfein: Goldman Didn't Bet Against Clients
Probe: Goldman Eyed Profits from Housing Bust
Goldman Disputes Assertions About E-Mails
Goldman's CEO, Board Named in Lawsuits
SEC Inspector General Will Investigate Timing of Goldman Case
Spitzer: SEC Will Likely Win Case Against Goldman Sachs
Analysts Bullish on Goldman, Despite Charges
SEC vs. Goldman: A Matter of "Material"